Is West Coast freight here to stay?

Chart of the Week:  Outbound Tender Market Share – Los Angeles, Ontario, Chicago, Joliet SONAR: OTMS.LAX, OTMS.ONT, OTMS.CHI, OTMS.JOT

Chicago used to be considered the top freight market in the U.S. as a centralized location and solid infrastructure make it an ideal hub for distribution channels in the eastern half of the country. Understatement alert: Times have changed. Over the past two years, the Los Angeles markets have taken over as the nation’s leading point of origin. Trade wars and pandemics have driven most of this shift in shipping activity to the West Coast, thanks in large part to surging imports from Asia. So why is this important? 

Looking at Outbound Tender Market Share (OTMS) values for the Los Angeles and Chicago area markets, they had similar values in early 2018. The Chicago and Joliet, Illinois, markets accounted for 5.52% of the total tender volume in March of 2018 and Los Angeles and Ontario, California, originated 5.4%. As of Thursday, LA markets accounted for 6.3% of the total origin U.S. tenders, while the Chicago area had 4.3%. 

The OTMS indices measure the percentage of total U.S. truckload tenders by origin market. The current largest market by tender volume is Atlanta with an OTMS value near 4.3%, meaning 43 out of every 1,000 loads requested over the past week originated in Atlanta. This is a good proxy for measuring relative truckload demand throughout the country and locating where demand shifts occur. 

Carrier networks depend on some level of consistency in order to optimize utilization. When shipping patterns change, imbalances become more prevalent, which leads to tighter capacity. As Los Angeles has grown as an origin, carrier networks have had to adapt to incorporate more ways to get trucks into Southern California. This of course is easier said than done. 

A tree map of the 32 largest origin markets for freight in the U.S. listed from largest in the top left to smallest in the bottom right. Chart: SONAR OTMS Tree Map for markets accounting for more than 1% market share.

While some markets remain relatively consistent in terms of percentage like Atlanta, swings in balance across the country can make it challenging for carriers to position capacity — and can lead to dramatic rate changes like the ones we have seen this past year.    

Not all freight is created equal

These changes do not simply mean carriers can locate customers to fill out lanes and rebalance their network, although that is a big step. Freight that originates in Los Angeles has the nation’s longest average length of haul of over 900 miles, while Chicago freight averages just under 600 miles from origin to destination, according to FreightWaves tender data. Hauling Chicago freight has a vastly different impact to carrier networks and their ability to supply capacity than the freight out of Southern California because of the mileage discrepancy and distance to major population centers. So what has caused this shift and will it flip once again?

Los Angeles freight has the longest average length of haul according to FreightWaves tender data. Chart SONAR – Average Outbound Length of Haul (OALOHA) USA, Los Angeles (LAX), Chicago (CHI)

Starting at the end of 2018 and early 2019, trade tensions between China and the U.S. increased, leading to a surge of imports from Asia as shippers attempted to avoid increasing tariffs on goods. Demand for goods surged in 2020 as consumers shifted to a work-from-home lifestyle, leading to an abnormal acceleration in purchasing of consumer products, electronics and home improvement items. 

The ports of Los Angeles and Long Beach are the busiest in the country, currently handling nearly 40% of the nation’s maritime container imports. This freight transitions to trucks and rail for surface transportation across the U.S. if it does not travel through the Panama Canal on a ship to an East Coast port. 

A large percentage of the container freight will move inland on rail in a normal year, but increased service demands due to depleted inventories and an overwhelming volume pushed a lot of the surface freight to trucking at premium rates. This allowed for the skipping of some of the intermediate destinations with major railheads.

The big question remains about the sustainability of the current pattern of West Coast dominance. The past two years have shippers considering significant supply chain overhauls as sourcing from China becomes less attractive and e-commerce is now a requirement for anyone trying to compete in the retail space. People are also leaving big cities for less crowded suburbs, further dispersing the population and making order fulfillment even harder. 

It may take some time for the dust to settle from the pandemic, but freight networks will continue to see changes in freight shipping patterns over the next 12 months. The U.S. dependency on China for many retail and preproduction items will not go away overnight, but once restocking is complete, Los Angeles volumes will recede to a point. There is little evidence to suggest Chicago will reclaim the volume title, but other markets are sure to emerge in time.

About the Chart of the Week

The FreightWaves Chart of the Week is a chart selection from SONAR that provides an interesting data point to describe the state of the freight markets. A chart is chosen from thousands of potential charts on SONAR to help participants visualize the freight market in real time. Each week a Market Expert will post a chart, along with commentary, live on the front page. After that, the Chart of the Week will be archived on for future reference.

SONAR aggregates data from hundreds of sources, presenting the data in charts and maps and providing commentary on what freight market experts want to know about the industry in real time.

The FreightWaves data science and product teams are releasing new data sets each week and enhancing the client experience.

To request a SONAR demo, click here.